Causality nexus between inflation and commodity futures trading in India

This paper is a novel attempt to fill the research gap by analysing the causal relationship between commodity (argi, metals and energy) futures trading, and commodity specific wholesale price index (WPI) inflation in India. A basket of four commodities chana (chickpea), gold, copper and crude oil has been taken as a proxy for the commodity market. From the results of Toda Yamamoto modified Granger causality test, we infer that there is no causality effect from futures trading volume to WPI inflation for gold, copper and crude oil while chana futures trading is found to be responsible for increase in prices of chana in the spot market. This is a serious matter of concern for the Government of India as India is the world's largest consumer of chana. In a nutshell, we don't find sufficient empirical evidence that commodity futures trading leads to higher inflation.